Moody’s cut the long-term debt ratings for BNP Paribas and Credit Agricole by one level to Aa3, the fourth-highest investment grade. Societe Generale’s rating was cut to A1, the fifth highest. Moody’s also cut the standalone assessments of financial strength of the three banks, while saying there’s a “very high” chance they will get state support if needed.

“Liquidity and funding conditions have deteriorated significantly,” the ratings company said in a statement. The likelihood that they “will face further funding pressures has risen in line with the worsening European debt crisis.”

The banks’ woes put at risk France’s AAA rating. Standard & Poor’s warned this week that the country’s top credit rating risks being downgraded, citing banks’ funding constraints among the reasons. French banks have been forced to borrow from the European Central Bank as their access to U.S. money-market funds has dried up on concerns about their holdings of European debt.

“The stress comes from the closing of the dollar taps, which constitute a part of the banks’ needs,” said Francois Chaulet, who helps manage 250 million euros ($333 million) at Montsegur Finance and owns the three banks’ shares.

At $681 billion as of June, French banks have the highest holdings of public and private debt in the five crisis-hit countries of Greece, Ireland, Italy, Spain and Portugal, according to data from the Bank for International Settlements.

Capital Shortfall

BNP Paribas, France’s biggest bank, slid as much as 4.9 percent and was 0.7 percent lower at 30.89 euros as of 11:06 a.m. in Paris. Societe Generale, the No. 2 bank, fell as much as 4.9 percent and was trading 0.4 percent down at 19.02 euros. Credit Agricole, which tumbled as much as 4.5 percent, was up 0.4 percent to 4.62 euros.

BNP Paribas doesn’t need new capital, spokeswoman Carine Lauru reiterated. Societe Generale said it was “surprised” by the Moody’s decision, adding that it was “confident” it can meet regulatory capital goals through its own means. Credit Agricole spokesman Denis Marquet declined to comment.

EBA Review

The European Banking Authority said yesterday that France’s four largest lenders have a 7.3 billion-euro shortfall in capital, less than its 8.8 billion-euro estimate in October. The new capital is needed to reach a 9 percent core Tier 1 capital ratio by mid-2012, after marking their sovereign bonds to market, it said.

“The key point is that the EBA has revised down French banks’ capital needs,” said Montsegur’s Chaulet. “It’s reassuring.”

The Moody’s downgrade today follows reviews the ratings company began in June and extended in September, when it cut the long-term credit ratings of Credit Agricole and Societe Generale while leaving BNP Paribas unchanged.

Standard & Poor’s placed ratings of European banks, including BNP Paribas, Societe Generale, Groupe BPCE and Credit Agricole, on watch Dec. 7 for a possible downgrade amid a similar review of 15 countries in the region.

ECB Funding

French banks’ liquidity woes have intensified as their U.S money-market fund access has dried up. The eight largest prime U.S. money-market mutual funds cut holdings in French banks by 68 percent in November, shifting investments to Swiss, Swedish, Canadian and Japanese banks.

French bank holdings declined by $11.7 billion to $5.56 billion, according to an analysis of fund disclosures by the Bloomberg Risk newsletter. The eight funds have reduced French bank debt by $76.8 billion in the past 12 months.

The decline in short-term lending by U.S. funds has forced French banks to increase their borrowing from ECB more than four-fold over the last four months.

“The ECB’s open market operations have been a vital source of funding for banks in the euro zone as the sovereign-debt crisis has intensified,” Jonathan Glionna, an analyst at Barclays Capital Group in London, said in a Dec. 7 report.

Montsegur’s Chaulet said banks have an interest in tapping central banks funds.

“Central banks are providing almost unlimited funds at a relatively low price, and any bank, even if it doesn’t need it, has got an interest to benefit from the largess,” he said.